Financial markets are on pins and needles this week as the Federal Reserve’s Open Market Committee prepares to meet. Nearly everyone expects the Fed to cut interest rates for the first time in four years.
It’s the size of the cut that has markets on edge. A quarter-point cut signals the Fed believes the economy is on track for a “soft landing.” Any cut larger than that would suggest the Fed is a little worried about the economy.
In anticipation of the Fed’s “pivot” toward lower rates, the price of gold is starting the week at another record high. Getting less attention is what a Fed rate cut, of any size, might mean for consumers struggling to pay a high-interest car loan.
The Wall Street Journal reports there are lots of Americans in that situation, citing recent reports from auto lenders who say low-income consumers are falling behind on their car payments. However, a Fed rate cut this week could offer those borrowers some relief since the Fed’s federal funds rate is directly tied to the interest rate on car loans.
But suppose you already have a high-interest car loan. How does a rate cut help? It doesn’t unless you refinance your auto loan.
What is auto loan refinancing?
While many people are familiar with the concept of refinancing a mortgage to get a lower payment, the idea of refinancing a car loan might be less know. But as the terms of car loans now can be as long as seven years, auto loan refinancing is becoming more common. At leas, it might once the Fed begins cutting interest rates in earnest.
Car refinancing is replacing your current car loan with a new one, typically with a different lender. The new loan is used to pay off the balance of the old loan, and you are then left with the new loan terms to fulfill.
It might make sense if your credit score has improved and interest rates have gone down. Once the Fed begins cutting rates, it might be something to consider. The ConsumerAffairs Research Team has compiled this buyer’s guide to help you navigate the process.